Bank reconciliation: the ten-minute check that catches costly errors

A bank reconciliation compares the cash balance in your books with your bank statement and explains every difference.

Why they differ

• Timing: cheques or transfers recorded in your books but not yet cleared by the bank.
• Bank items not yet recorded: bank charges, POS fees, interest or direct debits.
• Errors: amounts entered wrongly, duplicates or missing entries.

The steps

1. 1Start with the bank statement's closing balance.
2. 2Add deposits in transit; subtract outstanding payments.
3. 3Compare with your book balance.
4. 4Record bank charges and other items you hadn't booked.
5. 5Investigate anything left over until the difference is zero.

How often

Monthly at a minimum; weekly if you have many transactions. Most accounting systems can import bank feeds and match items automatically.

Why it matters

Unreconciled accounts hide errors, missed income and sometimes fraud. They also undermine the figures in your VAT and zakat returns.